ETFs finally come to Russia

By: Anna Fedorova | 19 Jul 2012

Recent changes to Russian legislation have opened up the market to exchange traded funds (ETFs), allowing the creation of this previously unused investment vehicle by Russian investment houses. Local fund providers welcome the change, saying that the market has been lacking liquid investment options.

The Russian State Duma has recently approved a legislation allowing Russian investment managers to form ETFs, Russian financial press reports. Until now, all investment funds on the Russian market were open- or closed-ended investment vehicles, which are not as flexible as ETFs and lock the investor into a rigid agreement with the fund provider.

Experts say the new legislation is set to attract more private money into the Russian market, as ETFs are particularly attractive for private investors. On top of liquidity, they also offer higher levels of investor protection, since they are usually subject to rigorous regulation. They also do not incur fund management fees, since the investment process directly follows a chosen index, so the cost of investing is much lower than through a fund.

SPDR ETFs, the exchange traded funds (ETF) platform of State Street Global Advisors (SSgA), says the use of ETFs by institutional investors is on the increase too. They use the investment vehicle to gain flexibility within the positions they hold, because transparency offered by ETFs allows them to make quick moves within their allocations.

ETFs are used widely in markets across the globe and the introduction of this investment option to the Russian market will raise its global competitive strength. A Russian institute of stock market makers will be created to oversee the trading process and carry out sales and redemptions.